Glossary of Terms

Accrued pension: for service up to any date, such as valuation date, is the amount of pension payable in the form of a monthly annuity commencing at retirement.

Actuary: a person whose work is to calculate statistically risks, premiums, life expectancies, etc. for insurance and pension plans. Most actuaries are not qualified to value pensions on marriage breakdown.

Ad Hoc Adjustment: amount added to a pension after retirement or termination to compensate for increases in the cost of living on an irregular basis and not as a result of a prior commitment or contract.

Annuity: in pension terminology, periodic payments (usually monthly) provided by the terms of a contract for the lifetime of an individual (the annuitant) or the individual and his or her designated beneficiary; may be fixed or varying amount, and may continue for a period after the annuitant’s death.

Beneficiary: in a pension plan, a person who, on the death of a plan member or pensioner, may become entitled to a benefit under the plan.

Benefit: generally, any form of payment to which a person may become entitled under the terms of a plan; often refers specifically to the normal pension provided by the plan formula.

Benefit Formula: provision in a pension plan for calculating a member’s defined benefit according to years of service and earnings (career or final average), a fixed dollar amount, or flat benefit rate.

Best Five-Year Average: a defined benefit plan that applies the member’s average earnings during the five years when earnings were highest.

Bridging Benefits: a temporary benefit provided to employees who retire prior to the age when government benefits (OAS and CPP) are available (age 65) in order to supplement their pension income until these benefits apply.

Career Average Plan: a defined benefit plan that applies the unit of benefit to earnings of the member in each year of service, and not to the final or final average earnings.

Commuted Value: amount of immediate lump sum estimated to be equal in value to a series of future payments - same as transfer value - the actuarial present value of the benefit to which an employee/spouse is or will be entitled. This is rarely the right value for equalization on marriage breakdown.

Common Law Spouse: almost all the provinces recognize that some men and women live together without getting married. While the precise definition varies from province to province, it means achieving the status of a spouse for some legal purposes, such as support, in the province.

Continuous Service: period during which an employee is continuously employed by the same employer; may be defined in the pension plan (or by law) to include certain periods of absence, and/or service with an associated or predecessor employer. To be distinguished from Credited Service.

Contributory Plan: a pension plan which requires the employees to make contributions by payroll deduction in order to qualify for benefits under the plan.

Credited Service: length of service used in the plan formula to calculate a defined benefit.

Death Benefit: A lump sum (usually), or a life annuity payable from a pension plan to the beneficiary or estate of a member who dies before retirement. May refer to a payment on death after retirement.

Deferred Pension: a pension benefit, payment of which is deferred until the person entitled to the pension benefit reaches the normal retirement date under the pension plan;

Defined Benefit Plan: defines a distinct benefit that the participating member will receive upon retirement, the value of which is at least equal to the member’s accumulated contributions with interest.

Defined Contribution Plan: plan sponsor contributions are defined, usually as a percentage of earnings, and usually include specific contributions to be made by the plan member. (1) At retirement, these contributions plus interest are used to purchase an annuity for former members. (2) The size of member’s pension depends on the amount of contributions made by, and on behalf of that member and will also vary due to interest earned on contributions and annuity rate at retirement time...exact amount of pension unknown until member reaches retirement age. There is no guarantee of specific benefit at retirement. Value is the sum of accumulated contributions with interest at the exact date, less a reasonable allowance for income tax.

Division of Pension Credits: also known as “credit splitting”, a provision in pension plans or pension legislation whereby one spouse on dissolution of marriage, may obtain a share of pension credits earned by the other partner during the period of marriage or thereafter.

Divorce: the termination of the legal relationship of marriage between a husband and wife.

Fifty Percent Rule:2 definitions: (a) OPBA, s 51 (2) - spouse never receives an amount greater than 50% of value of pension accrued to the member during the period when the party and the member were spouses. (relates only to pension value).

(b) OPBA, s 39 (3) - as of Jan. ‘87 legislation in Ontario dictates that the sum of the contributions and interest accumulated under a pension plan made by a plan member shall not be used to provide more than 50 % of the post-1987 commuted value on the date of termination. If the plan member is entitled to a contributory benefit, any amount above that is deemed surplus value and can be given to the member in a lump sum or returned to the value of pension, (relates only to pension contributions) referred to in pension reports as “Special Adjustment”.

Flat Benefit Plan: a defined benefit plan that specifies a dollar amount of pension to be credited for each year of service.

If and When Approach: (Division of Pension proceeds) requires that once the plan member reaches retirement or leaves active service for any other reason, the spouse is entitled to a part of the pension benefits payable to the plan member. Pension is shared once it comes into pay - share is expressed as a percentage and, upon retirement, the member pays to the non-member spouse a portion of each annuity payment according to the allocation formula agreed upon.

Indexing: to adjust (wages, interest rates, etc.) automatically to changes in the cost of living (inflation); a number used to measure change in prices, rates, employment, etc - showing percentage variation from an arbitrary standard (usually 100) representing the status at some earlier time.

Joint and Survivor Pension Option: a mandatory reduced pension that will continue after the member's death for the lifetime of the spouse. In most cases if, at the date of commencement of pension, the member has a spouse, the pension must be in the form of a joint and survivor pension paying at least 60% of the pension to the survivor. The benefits are not assignable. The rights to the pension benefits may be waived but the spouse cannot be compelled to do so.

Mortality Tables: measure the probability of a person at each age living exactly 1 year - pension pays a benefit from retirement to the death of the plan member and a mortality table is required to calculate its value. Two types of table - (A) Life Tables for Canada - developed by Statistics Canada from census data - show mortality rates for the general population of Canada. (B) Group Annuity Mortality Tables - developed by life insurance companies show mortality rates for employed individuals..

Normal Retirement Date: the date or age specified in the pension plan as the normal retirement date of members.

Pension: a fixed sum paid regularly to a person or surviving dependent following his or her retirement. There are both public (Canada Pension Plan) and private (from one's own employer) pensions. Some provinces consider a pension that is not yet being paid at the time of marriage breakdown to be property that must be divided.

Pension Benefit: implies periodic payments provided under the pension plan for the lifetime of the member.

Pension Benefits Act: Ontario's legislation regulating employment pension plans. It specifies minimum benefit provisions, funding and solvency requirements and investment guidelines.

Pro Rata: according to the calculation in proportion: proportionate(ly). For example one tenth of total pension value is earned prior to marriage. Calculate the Net Present Value of whole pension and allocate nine tenths of value to marriage portion. This method assumes that the value of the pension accrues equally each year.

Retirement Method: a projected accrued benefit valuation method, with salary projection where appropriate.

Separation Agreement: a contract signed by the parties to settle their differences. It can deal with property, custody, access, support and any other matters. A form of a domestic contract.

Spouse: a man or a woman who: (a) is married to the other; or, (b) is not married to the other and is living in a conjugal relationship; (i) continuously for a period of not less than three years; or, (ii) in a relationship of some permanence, if they are natural or adoptive parents of a child, both as defined in the Family Law Act.

Survivor Pension/Survivor Pension Benefit: a monthly benefit payable under a pension plan to the surviving spouse of a deceased employee or pensioner; usually refers to a benefit other than payments under the guaranteed annuity or joint survivor annuity provision.

Termination of Employment: severance of the employment relationship for any reason other than death and retirement.

Termination Method: an unprojected accrued benefit valuation method. No increase in accrued benefits shall be reflected, except to the extent such increases are provided to deferred vested pension plan members.

Valuation Date: The earliest of: (1) date spouses separate and there's no reasonable prospect of reconciliation, (2) date divorce is granted, (3) date marriage is declared nullity, as outlined by the Family Law Act. In Ontario courts of law, the valuation date usually is considered to be the date of separation.

Value Added: this method of valuation recognizes the fact that the value of a pension increases with years of service (salary levels increase) - usually results in a higher pension value. Two valuations are completed - (a) One at date of marriage (using the purchasing value of the dollar in the year of marriage) - (b) One at date of separation - subtract value of (a) from value of (b).

Vested: not contingent upon anything.

Vested Benefits (Vesting): benefits to which an employee is entitled under the plan as a result of satisfying age or service requirements; usually requires locking in of contributions as a result of membership in the plan for a specified period of time (two years under the Ontario Pension Benefits Act).

Year's Maximum Pensionable Earnings (YMPE): term referring to earnings from employment on which CPP contributions and benefits are calculated. YMPE is changed each year according to a formula based on average wage levels.